This weekend, the United States and Israel carried out air strikes on targets in Iran. The operation has led to the deaths of several senior Iranian regime officials, including the supreme leader, and significantly heightened the geopolitical tensions in the region.

Iran has announced retaliatory measures and there have been exchanges of missiles and drones in different parts of the Middle East. The airspace in the Gulf has been affected and warnings have been sent out to the maritime traffic in the Strait of Hormuz, a key route for global oil transport.

Before the attacks, the price of oil had reached its highest levels in recent months. Today, when the markets re-opened, Brent went up by nearly 10%, while gold, usually regarded as a safe haven asset, also rose sharply.

Why is oil so important?

The main channel via which this conflict could affect the global economy is oil.

The Strait of Hormuz is a strategic route, given that more than a fifth of the world’s crude oil passes through it. If maritime traffic were to be interrupted for a prolonged period, the impact on energy prices could be significant.

For the time being, only a limited and temporary impact on supplies is envisaged. Production in the region is continuing with sporadic incidents, while other oil exporting countries (OPEC+) have announced upturns in their supplies. If it’s confirmed that there has been no structural damage to the key infrastructures, the sharp initial rise in oil prices may slow over the course of the next few days or weeks.

What will the impact on growth and inflation be?

An increase in oil prices affects the economy in three main ways:

• It increases costs for families and businesses, potentially slowing growth.
• It benefits crude oil exporting countries and harms importers.
• It can drive up inflation, particularly in the short term.

It should be borne in mind that modern economies are less dependent on oil than they were decades ago.

Therefore, if the rise in the price of oil is only temporary, the impact on global growth will be reduced. The risk will increase if energy prices remain high for several months, as this could delay potential interest rate cuts and generate more pressure on consumption.

How are the markets reacting?

In situations of geopolitical uncertainty it’s common to see:

• More volatile stocks, particularly in sectors sensitive to the economic cycle and energy prices (transport, consumer goods, industry, etc.).
• Better relative performances of sectors linked to energy.
• A search for safe haven assets such as the dollar and gold.
• Movements in the bond markets, with expectations adjusted to inflation and interest rates.

Only in the event of a serious and sustained disruption to energy supplies could we see a more profound and lasting impact on the global financial markets.

Strategic considerations regarding investments

Geopolitical turmoil tend to generate short-term volatility. However, in historical terms, the impact on the markets is limited in time if they don’t become sustained economic crises. Hastily reducing risks during periods beset by greater tension has rarely been an efficient strategy.

At the moment, it’s vital to keep track of how the conflict evolves and, above all, oil prices. The length and intensity of the trend in energy prices will be decisive when it comes to assessing whether we’re witnessing a one-off escalation in tensions or a more profound change in the global economic scenario.

We’ll continue to closely monitor the situation and keep you informed of any significant developments.